26/03/2012

By Emily Coltman ACA, Chief Accountant to FreeAgent

It’s all change at HM Revenue. From 1st April 2012, all VAT-registered businesses will have to file their VAT returns online, and pay any VAT due electronically.

Paper VAT returns will no longer be accepted unless your business is subject to an insolvency procedure - or unless HMRC are happy that your business is run by practising members of a religious society whose beliefs don’t allow them to use computers.

How is this different from the current situation?

At the moment, all businesses who registered for VAT on or after 1st April 2010 must file their VAT returns online and pay VAT electronically.

In addition, any business registered before that date and which makes annual sales of £100,000 or more before VAT is also required to file their return online and pay their VAT electronically.

So currently, it is only businesses who registered for VAT before 1st April 2010 with annual sales of less than £100,000 can still file their VAT returns using a paper form and pay their VAT by cheque.

Not for much longer.

As from 1st April 2012 these businesses must also file and pay electronically.

For those businesses used to filing on paper, this could be a daunting prospect - but it’s not all bad news. If you file online, you get an extra seven days to send your VAT return in. So for example, if you’re preparing a VAT return to 29th February 2012, you have until 7th April - not 31st March - to file if you send the return online. And you also get at least 7 extra days to pay any VAT due.

How do I file my VAT returns online?

The first step is to register with HMRC’s VAT online services. If your business is affected by the change of criteria then I recommend you register now because HMRC will have to send you an activation PIN for the online service by post, and this can take up to 7 working days to arrive.

Then, each quarter, you’ll need to log into HMRC’s VAT online filing site and complete your VAT return details.

If you use a service like FreeAgent which allows you to file VAT returns from within the software, you will still need to register with HMRC’s VAT online services - but once you’ve done this you can file each VAT return online with a click of your mouse.

How can I pay VAT electronically?

HMRC accepts several different methods of electronic payment including BACS, FasterPayments, debit and credit card payments, and Direct Debit.

If you pay by Direct Debit, HMRC will collect your VAT payment automatically from your bank account on the third bank working day after the extra seven days you have to pay.

So, that means you might not pay until the 10th of the month, or even later.

You must, though, set up your Direct Debit at least two bank working days before your next VAT return is due. And if the VAT return is due on a weekend or bank holiday, you need to allow three bank working days before then to set up your Direct Debit.

Bank holidays are not bank working days. Remember that Good Friday falls on 6th April 2012, so if you have a VAT return to file by 7th April and you want to pay by Direct Debit for the first time, you’ll need to make sure you set up your Direct Debit by Tuesday 3rd April.

If you are affected by these changes, register to file your VAT returns online as soon as you can, and consider how you will pay your VAT electronically too.